Fitch: Foreclosure settlement is a boon for banks

The national foreclosure settlement announced last week is sure to be a drag on fourth-quarter earnings. But Fitch Ratings says that in the end, the settlement will be a positive for the banks.

Last week, 10 banks agreed to pay a combined $8.5 billion to settle the government's charges that they had wrongfully foreclosed on some struggling homeowners. The banks involved include Bank of America, Citigroup, JPMorgan Chase, PNC and Wells Fargo, all of which are covered by Fitch.

The settlement requires the banks to make about $3.3 billion in cash payments to certain borrowers. The banks must spend another $5.2 billion on "foreclosure prevention actions," such as easing the terms of mortgages for borrowers. The banks have already said the settlement will hurt their fourth-quarter earnings.

Consumer advocates have criticized the new settlement, saying it allows the banks to sweep past offenses under the rug without clearly accounting for what went wrong. The new settlement, they add, also fails to adequately distinguish between homeowners who were harmed and those who weren't.

But Fitch says that for the banks, the settlement means clarity on an issue that had been overshadowing the industry. The new settlement also ends a foreclosure-review process that the government had mandated in 2011. Under that settlement, the banks had to have contested foreclosures reviewed individually by independent consultants, a process that the banks had said was expensive and time consuming.

Fitch said in a note Monday that the new settlement will end the expense of the case-by-case foreclosure reviews, let the banks better estimate their future costs, and allow the banks to "refocus on the services they provide."